Market Rebound?

By : Mike Wright
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Many traders will be breathing a heavy sigh of relief this week as the economic calendar lightens comparatively. The US interest rate decision weighed heavily on trading action last week. The FOMC announcement had top billing and it certainly didn't disappoint. Many analysts were expecting a 25 base point cut, with much speculation on when the next cut would be. The 50 base point cut took many by surprise and the market reacted with typical enthusiasm.

Bernake and Co became the heroes of the hour on Wall Street, with them seemingly averting the credit crunch and saving the day. The Dow Jones rose 2.5% on Tuesday, and the following day, the Nasdaq 100 came within 4 points of its July peak. Crisis, what crisis? In fact some commentators are now labeling the latest concerns a "faux" credit crunch.

The decision has sparked some strong movement in the currency market with the Dollar falling hard against the Euro. The Euro remained strong across the board with the ECB maintaining their tightening bias. The "Loonie", as the US Dollar/ Canadian Dollar exchange rate is called, fell hard due in part to the rise in oil prices. The USD and CAD are now standing at parity (1USD = 1 CAD), the lowest levels for well over 30 years.

Over in the UK, the queues outside Northern rock disappeared as the Government and Bank of England intervened with various measures and reassurances, aimed to calm jittery investors and savers.

Next week is a relatively lighter week on the economic news front. Notable announcements are the US existing home sales on Wednesday, and new home sales on Thursday. With the US housing market being at the forefront of the current situation, this data could bring fresh perspective on the intermediate future. Although it is too soon for the recent rate cut to have any impact, Wednesday's core durable goods orders and Friday's PCE price index will give clues as to the implications of the 50 base point cut.

Opinions on the Fed's rate cut have been mixed, with Wall Street enjoying the move and some economists questioning its wisdom. As the impact of the announcement settles down, some are questioning what the Fed knows, that the rest of us don't. What was it that spooked the Fed into a half point cut? The implications are that the large cut was made because of the state of the economy, particularly the housing market and job growth.

Last Friday saw options expiration day, and according to research from www.sentimentrader.com, since 1990, the week following options expiration in September has shown a positive return on the S&P 500 just 2 out of the last 17 times. Taking out the week following 9/11, the average return for the week is -1.3% with the maximum gain being +0.6. One must always take such seasonality studies with a pinch of salt, but coupled with the dramatic rise we saw on one day last week, it could lend credence to the argument that we're short term over bought on the US markets.

A no touch trade, 90 points higher on the S&P, returns around 7% over 14 days. This means that as long as the market rallies slowly, stays still, or drops, you win.

You may also wish to have a look at BetOnMarkets.com's new "Double Contra" which pays out if the market never touches the two barriers you set above and below the current price. If it touches just one or neither of these you win. If volatility reduces during the relatively news light week, it could be an interesting play, particularly if you weight it to the downside.

Betonmarkets.com is the leading fixed-odds financial betting website. The website has processed over 10 million bets since inception in 2000, and generates annual turnover in excess of US$ 100 million. Betonmarkets offers a wide range of fixed-odds financial bets on forex rates, stock indices, and international stocks.

Betonmarkets is operated by the Regent Markets Group of companies. Regent Markets is affiliated to the Regent Pacific Group, a Hong Kong-listed investment group. Regent Markets has offices in three countries, and holds bookmakers licenses in the Isle of Man, the UK, and Malta.

Fixed-odds financial betting offers particular advantages over other forms of financial betting and investments, such as limited risk, potentially high payouts, and unique market opportunities. Particularly popular is Betonmarket's Range Bet, which offers the opportunity to profit from a period of quiet market action.

Betonmarkets also offers the following bet types: the Bull/Bear bet, the One Touch bet, the No Touch bet, the Range and Expiry Range bets, the Double One Touch and Double No-Touch bets, and a variety of intraday bets. Contracts are available on foreign exchange rates, major stock indices, and stocks.

One Touch Bet: You would buy a one-touch bet if you believe the market will touch a given point at least once before the bet expires. In other words, a one-touch pays out, if at any time prior to expiration, the market touches or trades through the specified barrier. Example: [Pays 100 if the FTSE touches X between today and date T]

No Touch Bet: A no-touch bet is the opposite of the one-touch bet. You would buy a no-touch bet if you think the market will never reach a certain level within a specified range of time. Example: [Pays 100 if the FTSE does not touch X between today and date T]

Bull Bet: You would buy a bull bet if you believe the underlying security/index/currency pair will be higher than a certain level (also referred to as the barrier level) on the maturity date. Example: [Pays 100 if the FTSE closes higher than X on date T]

Bear Bet: You would buy a bear bet if you believe the underlying security/index/currency pair will be lower than a certain level (also referred to as the barrier level) on the maturity date. Example: [Pays 100 if the FTSE closes lower than X on date T]

Expiry Range Bet: You believe that the market will be between two distinct levels (high and low) on the expiry date. Example: [Pays 100 if the FTSE closes between X and Y on date T]

Barrier Range Bet: You believe that the market will never touch two pre-determined barrier levels (high and low) before or on the date the bet expires. In other words, when you buy a barrier range you will win only if the market never touches the two barrier levels you have chosen. Example: [Pays 100 if the FTSE never touches X and Y between today and date T]

Double Touch Bet: You believe that the market will touch two pre-determined barrier levels (high and low) before or on the date the bet expires. In other words, when you buy a barrier range you will win only if the market touches both of the two barrier levels you have chosen. Example: [Pays 100 if the FTSE touches both X and Y between today and date T]

Up or Down Bet: You win if the market touches either of two pre-determined barriers before or on the date the bet expires. Example: [Pays 100 if the FTSE touches either X or Y between today and date T]

Double Up Bet: A Double Up bet pays two times the premium if the market rises above a given level between the time of purchase and the close of trading. It expires at the close of business on the day of purchase of the bet. Example: [Pays 100 if the FTSE closes above X between now and the close of trading today]

Double Down Bet: A Double Down Bet pays two times the premium if the market drops below a given level between the time of purchase and the close of trading. It expires at the close of business on the day of purchase of the bet. Example: [Pays 100 if the FTSE closes below X between now and the close of trading today]

Intraday Double Up Bet: Buy this bet to play a market rise between two given hourly market times today. You will have the possibility to set the starting hour of the bet and the ending hour of the bet, and you will win double your stake if the market follows your prediction. Example: [Pays 100 if the FTSE rises between the starting time hour and the expiry hour]

Intraday Double Down Bet: Buy this bet to play a market drop between two given hourly market times today. You will have the possibility to set the starting hour of the bet and the ending hour of the bet, and you will win double your stake if the market follows your prediction. Example: [Pays 100 if the FTSE declines between the starting time hour and the expiry hour]

Run Bets: These fun bets are over in the space of less than a minute; so you can make money in seconds. Here, you have to guess the last decimal digit of say, the USD/JPY (predict 3rd decimal place) after 5 ticks.